Banks hold back on restocking in weekly ECB funding

Reuters Staff

2 Min Read

The Euro currency sign is seen in front of the European Central Bank (ECB) headquarters in Frankfurt December 6, 2012.Lisi Niesner

FRANKFURT (Reuters) - Banks took 124 billion euros (105.8 billioin pounds) one-week loans from the European Central Bank, roughly 1 billion euros less than in the previous week, showing they are so far not replacing crisis funds being paid back early to the ECB.

Tuesday's marginal decrease in one-week loans comes after the ECB said on Friday that banks would repay a total of 137.2 billion euros of the three-year loans they took about a year ago at the earliest opportunity on January 30.

That means the reduction in 'excess liquidity' this week would be about 138.4 billion euros.

A strong drain of excess liquidity will foster the impression that funding conditions are improving and banks are becoming less reliant on the central bank's support.

Wholesale bank funding prices had fallen to record low levels after the ECB injected more than 1 trillion euros into the banking system to alleviate funding strains via two offerings of three-year loans in late 2011 and early 2012.

When the ECB announced the larger-than-expected amount of repayments on Friday, those prices jumped. Benchmark three-month Euribor rates hit their highest level in four months, while one-year eonia rates climbed to their highest since mid-June.

From Wednesday, banks can repay the first round of loans on a weekly basis, and from February 27 they can start to repay the second tranche.